The Women in Finance Charter
The overarching recommendations within the report have been transposed into the Women in Finance Charter (“the Charter”). This voluntary initiative aims to give financial services businesses – those which meet the FCA’s definition of a Financial Services firm - flexibility to adopt the Charter in a proportionate manner, see further below.
The report recommends a voluntary approach as being appropriate initially. However, if, in 12 months’ time, large sections of the financial services industry have not engaged, the expectation is that the Treasury should “re-examine whether a more prescriptive approach is required.”
Signatories commit to supporting the progression of women into senior roles by focussing on the executive pipeline and the mid-tier level, and to publicly report on progress to deliver against these targets.
The focus is very much on increasing the number of female managers and the report lists 10 Positive Actions (see below) that firms can take to achieve this.
Ten Positive Actions
1 Invest in supportive people managers
2 Create the right culture
3 Provide technology which supports flexible working
4 Ensure there are transparent pay structures
5 Increase the number of female role models
6 Implement good flexible working policies
7 Support working parents by encouraging the take up of Shared Parental Leave
8 Offer return to work programmes
9 Offer mentoring schemes and active sponsorship
10 Provide opportunities for women to gain commercial experience
Gender Pay Gap
Included within the report is a call for transparent pay structures in light of the 39.5% gender pay gap in financial services. Organisations preparing for publication of their gender pay gap may wish to consider the report’s findings about the factors that affect both fixed and variable pay within the sector. Tackling the following points now prior to publication of the pay gap figure may help firms reduce their overall figure.
For example, the report explains:
- Male candidates have a greater propensity of take external roles than female counterparts thus making them a more likely flight risk which could drive higher pay outcomes;
- Men are more likely to negotiate their own remuneration packages – both on moving roles and when staying with their firms; and
- Men are less likely to take career breaks with parental leave or spend periods of time working part-time.
Which firms are in scope?
The Charter applies to all financial services firms as defined by the FCA and all would also therefore extend to small firms with headquarters overseas but with significant operations in the UK. Such firms which fall within proportionality level three under the existing PRA and FCA Codes are recommended to be exempted from the expectation to sign up to the Charter. But if a firm employs more than 250 employees in the UK, irrespective of its total assets, it would be expected to adopt the Charter – in other words capturing firms which are already in scope for the gender pay gap reporting obligation. .
Many leading UK banks are already signatories such as, RBS, LBG, Virgin Money.
During the course of the evidence gathering phase no secret was made of the initial view that there should be a link between meeting gender targets and bonus payments. This has been reflected as one of the main recommendations in the final report .
The three main recommendations are: -
- Reporting: Firms should set their own internal targets, against which they publicly report progress. The phrase “what gets measured gets done” is repeatedly mentioned in the report. The focus is on all levels of the firm, not merely Main Board.
The type of data metrics that are suggested to be included, extend to the gender split of :-
- In other words it is expecting a thorough and clear identification of the gender mapping throughout a firm.
- Executive accountability: There should be an Executive accountable for improving gender diversity at all levels of their organisation and in all business units. Ideally this should be a business facing Executive rather than support functions. Interestingly the report recommends that this should be held by a man to reduce the risk that this is seen as a “silo issue”.
- Remuneration: Executive bonuses should be explicitly tied to achieving the internal targets which firms have set for themselves. It will be up to the institution to determine how they would do this and who this will apply to. The report cites elements of variable pay being linked good consumer outcomes or satisfaction levels, and believes that diversity targets should be viewed in a similar way. The report does specifically require similar requirements to be cascaded through various levels of seniority. It is not recommending that a failure to meet an internal target automatically prevents any variable remuneration being awarded. Nor does it suggest the weighting that might be allocated to achievement of a specific metric, whether for the Executive with specific nominated responsibility or other members of the Executive Committee/Senior Management.
Firms are expected to set out their own approach to each of these recommendations. There is an expectation that there will be annual reporting against progress, with targets being set on an annual or three yearly basis.
Existing reporting requirements
The report acknowledges that depending on size, financial service firms are already obliged to comply with a number of reporting obligations, including the following:
- The UK Corporate Governance Code requires listed companies to report on the Board diversity policy and objectives for implementing the policy
- The Companies Acts 2006 requires listed companies to include entries in their strategic report on the gender balance of directors, senior manager and employees
- CRD IV requires certain firms to develop a diversity policy on the Boards including a gender target for the comparison of the Board
Consequently many of the metrics used in other reporting obligations can be recycled for the purpose of the Charter.
Since 2008 the financial service sector has experienced unprecedented levels of media and public scrutiny. Those firms who choose not to sign up to the Charter may ultimately be called upon to justify their decision in the court of both public and professional opinion. For example, pressure from Institutional investors is explicitly identified as one important lever of change that has helped improve the gender composition of FTSE 100 boards.
The report emphasises that “mainstreaming” diversity and inclusion is advisable not from a “box-ticking” or litigation-risk management perspective, but because the macroeconomic case for doing so is increasingly compelling based upon empirical research. Gender equality is clearly an issue of fundamental fairness: the report emphasises that by expanding talent pools, creating and improving more flexible organisational cultures and encouraging diversity of analysis (“removing group-think”) will more readily align the financial services sector with its customers and also drive the bottom-line.
It will remain to be seen whether the Charter is accepted and adopted as a matter of course: but given that it is backed in government by HM Treasury there will clearly be significant pressure and incentive to do so.